Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing an organizational task.

The consideration for which labor is exchanged is called compensation.

Compensation management, also known as wage and salary administration, remuneration management, or reward management, is concerned with designing and implementing total compensation package.

The basic objective of compensation management can be briefly termed as meeting the needs of both employees and the organization.

Employers want to pay as little as possible to keep their costs low. Employees want to get as high as possible.

2.

Base Compensation means the total base salary, rounded to the nearest whole dollar, actually paid to a Participant during the Fiscal Year, excluding incentive compensation, commissions, reimbursement of expenses, severance, car allowances or all other payments not deemed part of a Participant’s base salary; provided, however, that the Participant’s contributions to the Company’s 401(k) plan(s) and the payment of overtime shall be included in Base Compensation. To the extent applicable, Base Compensation for Participants who terminate during the Fiscal Year shall include only such Base Compensation paid to such Participants during the Fiscal Year for the period prior to such termination.

Supplementary compensation: now days the organizations use supplementary compensation over and above the base compensation. It helps in satisfying the employees as well as retaining them for long time. It can be given in form of various services like housing, medical, educational facility. Supplementary compensation is also called fringe benefit as well as hidden payroll. The basic purpose of fringe benefit is to maintain efficient human resources in the organization and to motivate the employees.

• Base compensation entails monetary benefit to the employee in the form of wages and salaries.
• It's giving the remuneration to the workers for doing the work. Base compensation, therefore, involves payment to the workers for their work. In base compensation, payment is in cash.
• Base compensation is determined by job evaluation, demand, and supply of labour, organizations, and capacity to pay.

• Supplementary compensation is also known as a fringe benefit as well as hidden payroll. Supplementary, therefore, compensation denotes benefits over and above their wages/salaries.
• Supplementary compensation is paid to increase their efficiency and retain them while Base compensation wages and salaries are paid to compensate for their services.
• Supplementary compensation is determined by the history of the organization, the capacity of the organization to pay, and the need to retain talented employees.

3. The factors affecting employee compensation can be categorized into:-

1. Internal Factors and 2. External Factors.

Some of the external factors affecting employee compensation are:

1. Demand and Supply of Labour 2. Cost of Living 3. Economic Conditions 4. Prevailing Wage Level 5. Society 6. Government Control 7. Labour Unions 8. Legislation 9. Globalization 10. Cross Sector Mobility and 11. Compensation Survey.

4.

• There are six basic forms of compensation: salary, short-term incentives (STIs or bonuses), long-term incentive plans (LTIPs), benefits, paid expenses, and insurance.
• Short-term incentives are usually formula-driven, whereas bonuses are awarded after-the-fact and are usually discretionary.
• Wages are given to workers whereas salaries are given to employees. They are both affected by market forces, as well as other factors, such as tradition, social structure, or government regulation (e.g., minimum wage laws).
• Executive pay is usually a mixture of these different forms of compensation, with a salary, bonuses, benefits and expenses, and shares or call options on company stock.
• Salaries are often seen as part of a “total rewards” system that includes benefits and perquisites.
• Employee stock options (ESOs) are sometimes offered to management, with the objective of giving them an incentive to behave in a way that boosts the company’s stock price

5.

Some Basic principles
1. The priority level of wages and salaries must be reasonably in line with that happened in the market. The labour market criterion is most commonly used.

2. There should be definite plan to ensure that differences in pay for jobs are based upon variations in job desires, such as skill effort, responsibility or job or working environment, and mental and physical needs.

3. The plan should carefully differentiate between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it at that rate. Exceptions sometimes occur in very high-level jobs in which job-holder may make the job large or small, depending upon his ability and contributions.

4. Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, in spite of of who fills them.

5. An equitable practice should be adopted for the recognition of individual differences in ability and contribution.

6. There should be a clearly established procedure for hearing and adjusting wage complains.

7. The wage must enough to ensure for the worker and his family can afford standard of living.

8. Punctual and right payments of the dues of the employees must be ensured and arrears of payment should not delayed.